Bay Area Estate Planning Attorney Blog

Thursday, August 25, 2011

On Mondy, September 19, 2011 I will be speaking on drafting revocable trusts and ethical issues for estate planning attorneys at the Oakland Marriot. In addition, Veronica Cerruti will be giving an overview of trusts, and will talk about irrevocable life insurance trusts. Daniel Newbold will speak on using trusts for tax reduction, and grantor trusts. Wrapping it all up, Christing Beraldo will speak on trusts for the disabled. It is part of the all-day seminar "Trusts 101" put on by National Business Institute. For more information, click here.

Trust and Estate litigation is about half of my practice (the other half is split among probate, estate planning and trust administration). I can't say I feel threatened by this, because the kind of dispute that someone would pick JabberJury to resolve is likely not the kind of dispute that really needs a lawyer, and very probably not the kind of dispute that I would take on as an attorney.

With that said, I think it is a great idea. My heretical thought for the day is that people are often too quick to get lawyers involved, and the lawyers do too much work that provides too little benefit for their clients. Perhaps things like JabberJury will evolve into something really useful.

Tuesday, May 5, 2009

Estate planning and litigation help each other out. As an attorney, having experience in estate planning will make you a better litigator because, among other things, it helps you understand and spot the issues. There is little doubt (at least in my mind) that being a litigator makes you a better estate planner because it gives you a front row seat to what doesn't work, and why.

In Teselle v. McLoughlin, the estate plan was big and complex. It also was amended. One of the amendments may have removed property from the trust, or maybe it didn't. When the settlor died, the successor trustee distributed the property that may or may not have been removed from the trust as though it was still in the trust. Litigation ensued.

Complaints were filed. Demurrers were filed. Amended complaints were filed. More demurrers were filed. Finally, a motion for summary judgment was filed (after over two years of litigation). The motion was granted (in part because the plaintiff was one day late in filing their opposition!). An appeal was filed. The appeals court held that the summary judgment should not have been granted, so back to the trial court we go.

Most of the controversy is from the language surrounding the piece of property. The original trust called for the property in one brother's trust to be exchanged with property in the other brother's trust on the death of either brother. The one brother amended his trust, and removed a piece of property from the list to be exchanged with the other brother's property. When the first brother died, the trustee exchanged the removed property anyway, and then sued to get it back when they concluded that the property should not have been exchanged. The defendant argued that removing the property from the list in the trust did not mean the property was no longer in the trust and subject to the exchange agreement.

During the course of the litigation, the drafting attorney signed a declaration that the property was removed in the amendment because the brother intended to sell it. It was never sold. The attorney declared that the brother never intended to remove the property from the exchange agreement as long as he owned it.

Could clearer drafting have avoided this litigation? Maybe. The parties did seem very committed to fighting with each other, and there were (many) other issues in the lawsuit, but communicating the intent of the settlor is the most important job of an estate planner. Part of that is looking for the potential red flags of future litigation. Honestly, if the family is not getting along, it may not matter how carefully the plan is drafted. But it's better to know in advance because it may help the attorney counsel the client against a gift that may cause conflict.

Thursday, April 30, 2009

It's been said that bad facts make bad law. It can also be said that confusing facts make confusing law. Or at least hard-to-read law.

Darrell Prindle shot and killed his estranged wife Angela in May 2002. He also shot and injured several others, including Angela's sister Jessica. Angela's mother Earline opened a probate in July 2002. In May 2003, Jessica sued Darrell and Earline (as administrator for Angela's estate) for negligence in failing to warn her that Darrell would return to the residence. Earline notified Traveler's insurance of the lawsuit and asked them to defend the estate. Jessica made a policy limits demand against Traveler's for $100,000. Travelers rejected the claim and refused to defend the estate. Jessica did not make a claim against the estate before the exipration of the deadline.

The matter went to trial, and the judge found the estate liable to Jessica for $7 million. The estate assigned their insurance bad faith claim against Travelers for failing to defend and indemnify to Jessica in exchange for Jessica's agreement not to execute the judgment against the estate. Jessica and the estate then sued Travelers for bad faith (which if successful would open Travelers to liability in excess of the policy limits of $100,000). Jessica finally made a late creditor's claim against the estate for the $7 million, and also filed a petition to allow the late claim. The estate asked the court to approve the late filing of the claim, or at least to acknowledge that the estate's actions constitute a waiver of the claim filing requirement.

Some background is in order. Typically, a creditor has four months from being notified of a probate to file a claim against the estate. If they fail to meet that deadline, they can file a petition for the court to approve a late claim. The court here held that the estate did not have the power to allow the filing of a late claim, but also found that the estate's actions constituted a waiver.

This case is all about insurance. The estate had only about $16,000 in it, so there was no way they would be able to pay the $7 million judgment. Travelers argued that because Jessica's claim was not timely filed, they were off the hook. The court disagreed. Because Travelers refused to indemnify and defend the estate, Travelers is on the hook for the $7 million judgment just as much as Earline is as administrator of the estate. The court held that the estate waived the right to refuse a late claim by Jessica (because they were aware of the claim before the deadline expired), so Travelers, as the insurer of the estate, cannot use the late filing as a defense to their obligation to pay.

I suppose the rule here is that when an estate waives the claim filing deadline, that waiver can extend to others who might benefit from the claim filing deadline, such as an insurer.

The other lesson is that Travelers could have gotten out of this for $100 grand, but is now on the hook for $7 million.

Wednesday, April 29, 2009

Chris and Cindy adored their parents James and Mildred. James and Mildred did what a lot of married couples do in their later years, they created a trust to benefit them during their lifetimes, minimize the affect of estate taxes on their deaths, and distribute their assets to their children. This is the story of how all that planning can be threatened by undue influencers, and how the family can fight back.

Mildred died in 1994, about two years after they created the trust. The trust was split into three trusts: one revocable trust for James, and two irrevocable trusts designed to minimize estate tax exposure. Chris was named as the successor trustee to his father James.

Enter Flora Ibarra. A few months after his wife's death, James became romantically involved with Flora, and she then moved in with him and became his full-time caregiver. Eventually, Flora got James to amend his revocable trust nine times, giving Flora and her family greater shares of his estate, and removing Chris as successor trustee. James also exercised a power of appointment he had over the assets in one of the irrevocable trusts, and sold property in the trust to his revocable trust (which now had Flora and her family as beneficiaries). Flora also isolated James from his children Chris and Cindy. Finally, in one of the amendments to his trust, he added a long and draconian no-contest clause that would disinherit anyone who tried to challenge the provisions of the trust.

James died in 2006. Chris and Cindy did not find out about this until they got a probate notice and a notice of change of trustee. Chris then learned of the nine amendments to the revocable trust. Chris was now trustee of the two irrevocable trusts, which still named him as successor trustee, so he began to look into the assets of those trusts. The trust over which James had the power of appointment had no assets, and the other irrevocable trust had about $177,000 in it. Chris knew that prior to his mother's death, the trusts had over $7 million in assets.

Chris believed Flora Ibarra unduly influenced James to change his revocable trust and take the money out of the irrevocable trusts using his power of appointment to benefit her and her family. He sought to contest the changes, but he knew that the no-contest clauses would disinherit him. He filed a "safe harbor" petition, which asked the court whether his proposed challenges would be a contest subject to the no-contest clause.

Chris was smart, though. His challenge was as trustee of the irrevocable trusts, not as a beneficiary of his father's revocable trust. As trustee, he had a duty to marshall the assets of the irrevocable trusts, which had been siphoned off for Flora's benefit using the power of appointment. Flora, naturally, argued that this was a contest, and he should be disinherited.

The court disagreed with Flora. A trustee has a duty as a fiduciary to administer the trust, and cannot be subject to a no contest clause for exercising that duty. The probate code (at section 21305(b), if you're interested), specifically states that a pleading challenging the exercise of a fiduciary power is not a contest.

Although all the drafting under the sun cannot protect an estate from the Flora Ibarras of the world, the probate code and the courts do their best to keep the undue influencers in check.

Tuesday, April 28, 2009

Sometimes, in a the middle of an otherwise mundane appellate court opinion, you get a snippet if the flavor of the underlying litigation. In Estate of Kelly, there was just such a whif.

The rule of law should keep most probate attorneys on their toes. Stanley Kelly died leaving an estate of over $1 million. His father, E. George Kelly, petitioned the court for letters of administration (which is what you do so you can probate the estate). George also notified Human Rights Campaign, Inc. (HRC) that it was the beneficiary of several of Sanley's bank accounts. George filed a petition stating that Stanley died without a will or trust (i.e., he died intestate), and asking the court to approve distributing Stanley's estate to himself as the sole heir. HRC responded with a petition to probate a handwritten (or "holographic") will by Stanely leaving his entire estate to them. George claimed that the time period for HRC to admit the holographic will had expired, and so they could not receive Stanley's estate under the will. The court held that the clock never started ticking on the time period for admitting the holographic will because George never gave HRC notice of the petition for letters of administration. George argued that he did six different things that communicated to HRC that he was probating Stanley's estate, all of which effectively notified HRC that he was the administrator. The court was having none of it, and held that Notice means Notice. The only thing that starts the clock ticking for someone to admit a will to probate is Notice using the proper Judicial Council form. Sorry, George, but HRC gets to admit to probate Stanley's holographic will giving his $1 million estate to them.

Now for the interesting part. The factual statement in the opinion contained this passage: "The bigger picture was that the Administrator and his counsel had superfiduciary duties 'not to mislead the court, and they have duties to make sure that the estate is probated and tha tit follows the wishes and intent of the decedent.' The court rejected the argument that counsel for the administrator was placed in an adversarial position; his duty was to probate the estate, not to obtain a distribution for [George] Kelly." In other words, counsel, remember who your client is! The attorney George hired represented the Estate of Stanley Kelly, not George as sole heir. Somehwere along the way, this attorney lost sight of this, and fought for George over the estate. I can't help but think that court was, in part, bringing counsel back in line by using the "strict construction" of the notice requirements of Probate Code section 8226.

Although I love the phrase "superfiduciary duties," I must admit I fear that it is going to start showing up fairly regularly in pleadings.

Disclaimer

Here is the inevitable fine print:

No Attorney-Client Relationship

This website is intended for informational purposes only, and the materials and information in it are not legal advice. Use of this website, including retrieval and review of information, does not create an attorney-client relationship between the Law Offices of Margaret M. Hand, P.C., and you. You should consult an attorney before acting on any of the information in this web site. If you contact me, please do not send any confidential information until I tell you it is OK to do so.

No Warranties or Liability

I try my best to present information that is legally accurate and correct as of the time I write it, but keep in mind that the law is very complex and is always changing. I make no warranties regarding the accuracy of any of the information presented in this website, and am not responsible for any errors or omissions. I am not liable for any damages related to the use of this web site under any circumstances.

Third-Party Information

I am not responsible for any of the content contained in any other websites that I have placed links to in this site. I make no representations or warranties regarding any of the information contained in those websites. These links are provided for informational purposes only, and I make no recommendation, approval or endorsement of any site I have provided a link to on this website.

Privacy Policy

I retrieve no personal information from anyone using this site other than information provided by the user’s browser or information you enter into the form on the Contact page. I will not share any of the personal information provided with anyone without your consent or a court order. The information provided by you will only be used by me to respond to any inquiries by you, or to monitor website traffic.

I reserve the right to change this privacy policy without notice. Any changes in this policy will be reflected on this site.